El Salvador’s Cryptocurrency Legislation Landscape Prior to 2024

El Salvador, known for being the first country to recognize Bitcoin as legal tender, continued to shape its cryptocurrency landscape with significant legislative developments prior to 2024. In 2023, the country’s Legislative Assembly approved a new law, the Law on the Issuance of Digital Assets (LEAD), to regulate the burgeoning field of digital assets. This move was part of El Salvador’s broader strategy to promote technological and financial innovation and attract foreign investment, building on the foundation laid by the adoption of the Bitcoin Law​​.

Establishment of Regulatory Bodies

The LEAD law led to the creation of key institutions to oversee the digital asset sector. The National Digital Assets Commission (CNAD) was established as the primary regulatory body responsible for implementing LEAD, regulating public offerings of digital assets, and approving the issuance of these assets. The Bitcoin Funds Administration Agency (AAB) was also created to manage the funds derived from public offerings of digital assets by the state​​.

Defining Digital Asset Service Providers

The law defined Digital Asset Service Providers (PSAD) as entities, either based in El Salvador or marketing their services there, responsible for various digital asset-related activities. These include exchanging digital assets for fiat currency or other digital assets, operating trading platforms, assessing risks and prices, and managing investment products in digital assets​​.

Role of Issuers and Certifiers

Issuers of digital assets, according to the LEAD, are individuals or legal entities promoting public offers of digital assets or seeking to trade them on exchange platforms. They are required to be domiciled in El Salvador or use a platform based in the country. Their offerings can include existing digital assets, new ones created through these offerings, or entirely original digital assets. Furthermore, the state, including entities like the Ministry of Finance and the Central Reserve Bank, can make public offerings. Issuers of stable coins must disclose the number of coins they plan to issue and pay corresponding rates​​.

Certifiers of Public Offers are legal entities tasked with conducting a comprehensive analysis of public offers. They are required to register with CNAD and submit reports on compliance with the obligations of the issuers​​.

Tax Benefits and Operational Fees

One of the LEAD’s notable aspects is the tax benefits it offers. The nominal value and returns from digital assets are exempt from liens, taxes, rates, and contributions. Additionally, capital gains or income from digital asset transfers are tax-exempt. These benefits apply to issuers, certifiers, and registered digital asset service providers but do not apply to digital asset exchanges for goods or services not specified in the LEAD​​.

The law also introduced a series of fees for the operation of digital asset-related activities, with specific fees for PSDs, Certifiers, and Issuers. These fees vary based on the nature of the activity and include initial registration fees, renewal rates, and specific charges for additional certifications​​.

Enforcement and Penalties

LEAD regulates infractions by suppliers, certifiers, and issuers, prescribing fines for each infraction. The severity of the infraction, the damage caused, and the ability to pay are considered when imposing these fines. The Law of Administrative Procedures provides the framework for determining infractions, sanctions, and prescriptions​​.

In summary, El Salvador’s legislative developments in the digital asset space prior to 2024 reflect a pioneering approach to integrating cryptocurrencies into the national economy. The country’s efforts to establish a comprehensive legal framework underscore its commitment to becoming a hub for digital financial innovation.